My Brain Made Me Do It

March 6, 2009

Sendhil Mullainathan, the second MacArthur Fellow here blogged, writes in Seed Magazine about how human psychological foibles influence how we borrow and save:

“This perspective will eventually alter the way we fight poverty. It should affect the way in which governments in developing countries set their policies, donor agencies like the World Bank provide aid, and foundations and others give support.”

For example, a poor woman might borrow at usurious rates to pay for a safe hospital delivery of her baby even when it would have been cheaper to save up in advance.

Strikes me that the psychological perspective has implications for the moral one. If because of our genes we predictably borrow more than we should, that puts an onus on lenders to prevent over-borrowing. The sanctity of consumer autonomy—the ethical stance that borrowers are entirely responsible for their own actions—doesn’t suffice. OK, so maybe that’s not a new idea.

Hat tip to Jonathan Morduch at the Financial Access Initiative blog.

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1. John Robinson Says:
   March 7th, 2009 at 1:26 pm

   Lenders should try to prevent over-borrowing…but not at the expense of keeping people in poverty. The greatest thing about microfinance is the ability for people to escape poverty – let’s not lose sight of that.

   John Robinson